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Selling Options on Futures?


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Selling Options on Futures?

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  #7131 (permalink)
desert CA
 
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per the optionsellers.com bust. Interesting and warning info on how overly risky on dangerous options plays was done:

https://earlyretirementnow.com/2018/12/18/the-optionsellers-debacle/


"Quite intriguingly, their strategy imploded over the span of just a few trading days."

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  #7132 (permalink)
Legendary Market Wizard
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Old story by now, but the details on the size of positions was interesting.

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  #7133 (permalink)
Hanoi, Vietnam
 
 
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Funny that in the book they barely say anything about increases in margin, and how important that is. They advise to sell options with delta of 2 (very risky) yet ignore other greeks like they are not important. While its true that I have learned a lot from the book and from their blog, the book itself is like a huge sales pitch, giving readers an idea of something too good to be true.

I have realized that so so many things conveniently were left out of their "sales pitch" not long after I started trading real money, and Im so glad I did. Its so dangerous to advise selling options naked without telling readers/retail investors a full picture of how bad and how fast things can go.

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  #7134 (permalink)
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CannonTrading View Post
Looks like I am very late on this one but great topic and excellent info shared by many.

...

Sometimes, like yesterday, I will use ratio spreads, in this case buying the 1520 call and selling 2 1580 calls on Sept.. gold options ( 19 days left) for debit ( I paid $450)

A quick update on the ratio spread I mentioned couple of weeks ago. Gold options expired with the 1520 in the money by about $28 and the two 1570 I sold to generate the cash to buy the 1520 expired worthless. It does not always work obviously but it is nice when it does work.

I have a good table that outlines the strategies and when to use etc. but it does not copy/paste well - feel free to PM me and I will send the link. It is on our site > futures trading education >options 101

PM with any questions about Cannon Trading (800) 454-9572 (310) 859-9572. Trading commodity futures, forex and options involves substantial risk of loss. The recommendations contained in this post are of opinion only and do not guarantee any profits. These are risky markets and only risk capital should be used. Past performance is not necessarily indicative of future results.
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  #7135 (permalink)
Cleveland, OH
 
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Here is a real life, prime example of why you shouldn't ride out short options to expiration.

The Oct CL 58.50 call expires on Tuesday Sep 17. On Friday Sep 13 it settled at $0.01. During the weekend there were bombings at Saudi Arabia oil processing plants. On Monday Sep 16 the 58.50 call option settled at $4.40!

Waiting for the last $10 of the option turned into thousands of dollars of loses.

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  #7136 (permalink)
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ron99 View Post
Here is a real life, prime example of why you shouldn't ride out short options to expiration.

The Oct CL 58.50 call expires on Tuesday Sep 17. On Friday Sep 13 it settled at $0.01. During the weekend there were bombings at Saudi Arabia oil processing plants. On Monday Sep 16 the 58.50 call option settled at $4.40!

Waiting for the last $10 of the option turned into thousands of dollars of loses.

I've been wondering about that when I saw the increase in Crude oil that day. Crazy. Cant agree more about not riding options to expirations, now instead I tend to close at anything below or at 3 ticks, usually 2 would be best, 1 would be pushing it a little, but it also depends on time to expiration and how safe I feel at that time. But yeah, waiting for the last tick can backfire so hard, even when everything seems so perfectly fine.

I know Im an inexperienced trader here, but somehow I feel like this kind of movement tend to happen more in "political" commodities, is that correct? Of course things like grain hitting a drought or major cold blast taking NG up to the sky can also happen, but 1st its a bit seasonal (there are more sensitive/less sensitive times) and 2nd over long time violent and quick moves happen less than in commodities like Crude Oil, Gold? Even Lean Hogs at this moment feel political, making crazy one day moves depending on how it goes between politicians. Im not sure if this is true, but this feeling is the reason I tend to stay away from commodities that I feel are political.

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  #7137 (permalink)
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yurahoang View Post
I've been wondering about that when I saw the increase in Crude oil that day. Crazy. Cant agree more about not riding options to expirations, now instead I tend to close at anything below or at 3 ticks, usually 2 would be best, 1 would be pushing it a little, but it also depends on time to expiration and how safe I feel at that time. But yeah, waiting for the last tick can backfire so hard, even when everything seems so perfectly fine.

I know Im an inexperienced trader here, but somehow I feel like this kind of movement tend to happen more in "political" commodities, is that correct? Of course things like grain hitting a drought or major cold blast taking NG up to the sky can also happen, but 1st its a bit seasonal (there are more sensitive/less sensitive times) and 2nd over long time violent and quick moves happen less than in commodities like Crude Oil, Gold? Even Lean Hogs at this moment feel political, making crazy one day moves depending on how it goes between politicians. Im not sure if this is true, but this feeling is the reason I tend to stay away from commodities that I feel are political.

Things can happen to all commodities that are not political. Cattle or hogs can get diseases. Pipelines or processing plants for oil or NG can explode. Etc.

But yes political things can make some commodities volatile. I wouldn't stay away from them always. Just pick times to avoid them.

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  #7138 (permalink)
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How do you guys find "overpriced" options to write? Do you just wait for a day where the underlying future has a big move and option volatility is high? Of course based off of of other technical/fundamental analysis.

Is there a watch-list somewhere for volatile options on futures? I see there are a few for stock options.

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  #7139 (permalink)
Cleveland, OH
 
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swisstrader321 View Post
How do you guys find "overpriced" options to write? Do you just wait for a day where the underlying future has a big move and option volatility is high? Of course based off of of other technical/fundamental analysis.

Is there a watch-list somewhere for volatile options on futures? I see there are a few for stock options.

I look more for a fundamental reason to sell an option than finding "overpriced" options.

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  #7140 (permalink)
Zurich
 
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ron99 View Post
I look more for a fundamental reason to sell an option than finding "overpriced" options.

I appreciate the answer. I watched your short webinar. You mentioned some techniques of adjusting the position if it moves against you.

What does that exactly entail? buying the option back at a loss and then reselling at a further out date/further price? Hedging with a futures contract?

How do you normally handle positions that get uncomfortable?

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